Treasury Secretary Janet L. Yellen on Thursday downplayed the possibility that President Biden could essentially ignore the debt limit by invoking the 14th Amendment, calling the idea “legally questionable.”
Her comments come as lawmakers and the Biden administration remain locked in a standoff over whether and how to raise the debt ceiling, which caps how much money the federal government can borrow. Ms. Yellen warned lawmakers last week that the United States could run out of money to pay its bills on time by June 1.
Mr. Biden is scheduled to meet with top congressional leaders again on Friday, after an initial meeting on Tuesday failed to elicit an agreement.
The brinkmanship has raised questions about whether the Biden administration can act on its own to raise the $31.4 trillion borrowing cap by relying on a clause in the 14th Amendment stating that “the validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.”
The strategy would effectively be a constitutional challenge to the debt limit. Under the theory, the government would be required by the 14th Amendment to continue issuing new debt to pay bondholders, Social Security recipients, government employees and others, even if Congress fails to lift the limit before the so-called X-date.
Ms. Yellen, however, continued to dismiss that notion.
“There would clearly be litigation around that; it’s not a short-run solution,” Ms. Yellen said at a news conference in Japan before a meeting of finance ministers from the Group of 7 nations. “It’s legally questionable whether or not that’s a viable strategy.”
Biden administration officials have studied the idea, but the president also voiced similar skepticism this week after meeting with Speaker Kevin McCarthy and predicted that unilateral action to raise the debt limit without Congress would spur litigation.
As she prepared to meet with her international counterparts, Ms. Yellen warned that failing to lift the debt limit would have dire consequences for the United States and the world economy. She noted the significant uncertainty associated with a default but predicted that a sharp decline in government spending combined with the expected turmoil in financial markets would lead to a “very substantial downturn.”
“A default would threaten the gains that we’ve worked so hard to make over the past few years in our pandemic recovery,” Ms. Yellen said. “And it would spark a global downturn that would set us back much further.”
She added: “It would also risk undermining U.S. global economic leadership and raise questions about our ability to defend our national security interests.”